Good credit ratings to help Phl draw in more investors

CEBU, Philippines - The Philippines had gotten a good credit rating from global credit rating agencies.

But how important actually is a credit rating for a developing nation like the Philippines?

Karby Leggett, Asia head of public sector at Standard Chartered Bank Singapore, said a credit rating has a significant impact to how foreign investors look at the Philippines.

Sovereign credit ratings are indicators of a country's likelihood to pay back an obligation, giving investors insight into the level of risk associated with investing in a particular country and also include political risks.

Leggett said that credit rating agencies look at a country's government effectiveness, control of corruption, and rule of law, among others, when giving a credit rating.

"A credit rating informs foreign investors about the domestic policy environment," he said in a recent interview at the sidelines of the ASEAN meetings in Mactan, Cebu.

Leggett said credit ratings are important because foreign bond investors require the rating before they put their money in the bond market.

He added the ratings also reflect how investors look at a country in terms of business suitability.

The Philippines currently holds a Baa2 rating with a “stable” outlook from Moody’s, a notch above minimum investment grade, keeping borrowing costs lower.

It also holds a BBB stable long-term credit rating from Standard & Poor’s Financial Services and BBB-Positive Investment Grade rating from Fitch Ratings.

A BBB stable rating means the Philippines is deemed able to pay its debt fully and on time.

According to Reuters, the Philippines' long history of junk-debt status ended in 2013 when it won an investment-grade status, first from Fitch, then S&P and then by Moody's, owing to the a strong external profile, low inflation and shrinking budget deficit.

Leggett noted that bond investors use this to gauge whether a government would pay or default on its debt, citing factors such as government effectiveness, transparency and domestic policy.

The Philippine government had been offering bonds to raise capital for state spending especially for infrastructure.

Recently, the Bureau of Treasury had raised P175 billion from its March 28-April 6 sale of three-year retail treasury bonds (RTB), the second RTB offer under President Rodrigo Duterte.

The Duterte administration's first RTB offer raised P100 billion in 10-year debt with 3.5 percent coupon in September last year.

The current government is looking to raise infrastructure spending to an equivalent of 7.1 percent of gross domestic product (GDP) by 2022 when Duterte's term ends from a programmed 4.3 percent of GDP in 2015 and 1.8 percent in 2010, according to the government’s Investor Relations Office.

The P3.35-trillion national budget this year programs public infrastructure spending to increase 13.79 percent to P860.7 billion equivalent to 5.4 percent of GDP from P756.4 billion or 5.1 percent of GDP in 2016.

The 2017-2022 Philippine Development Plan approved last February seeks to boost GDP growth to an annual average of 7-8 percent in the next six years from the 6.2 percent average in the six years under the previous government of former president Benigno Aquino III. (FREEMAN)